What Kind of Forex Trader Are You?
If you haven’t already done so, please see our guide to using this site, which will also fast track your knowledge of Forex – Become a Forex Trader with Us.
We follow this guide with a more in-depth look at the different types of Forex Trader. Identifying how you trade, what you trade and your trading style means you can match your trading to your personality – and boost your profits as a result.
If you are reading this page, there is a good chance that you are very interested in trading –as a way of making more money, as a full-time business or as a hobby with benefits! It is worth considering the following points to determine what kind of Forex trader you are, what style of trading suits you best and some useful information that will keep you in the game when all around you are taking a beating from the markets.
One way of identifying what kind of Forex trader you are is based on what you make trading decisions based upon – how you trade Forex. Fundamental analysis looks at the mood of the market based on prevailing economic, social, political, meteorological and geological information. Whilst it may be fair to say that the Futures markets are the most sensitive to the full range of these influences, there are many Forex Traders who make a good living using only information that can be found in any broadsheet newspaper or financial magazine.
Fundamental analysis for the Forex Trader
Technical analysis is the most popular tool for Forex traders, relying as it does on a range of indicators that come with most charting packages. By combining different indicators with different settings, traders attempt to develop a system with a statistical advantage. Since losses in the markets are expected, it is important to develop a system that wins enough of the time that the risk to reward ratio means that profit will be achieved. It is possible to have a very high win-rate and still lose money – and have a very low win rate and still make money – because of this risk/reward ratio. You can read more about Forex systems here – Become a DIY Forex Trader
Another important way of defining yourself as a trader is to look at what you trade in Forex. There are many, many pairs in Forex – thousands of combinations – although most are not tradable through the majority of brokers. Despite this, more and more exotic pairs are being added by brokers, meaning the Turkish Lira vs. US Dollar, Hungarian Forint vs. Euro and more are now available for you to blow your account with!
Large spreads and low volume make trading exotics a risky proposition for a Forex Trader
Most pro Forex traders have a handful of currency pairs that they will only trade – perhaps three or four, although some traders only trade one pair, typically the EURUSD, as it has the lowest spreads and good volume. It is also traded 24/5. The GBPUSD is another favoured pair, typically exploding into life as the Asian session gives way to the European and London Open. Each pair has its own characteristics – by learning how one pair typically operates, it will greatly enhance your chances of being profitable.
A final way of defining your trading is to look at your Forex trading style. Are you a scalper, a day trader, a news trader, a swing trader, a position trader or a long term investor? Below are the different types of trading style employed by typical Forex traders:
Scalper – Trades off the 1M, 5M, 15M charts OR using Range Bars or Renko charts. Scalpers also trade off Tick charts if supported by their brokers/charting software. A Forex Trader who scalps is looking for very small profits, with rapid entries and exits. Scalping requires massive concentration and reaction skills, and can be very stressful for many people.
Day Trader – Looks to capture profits from small intraday moves. Uses 15M, 30M and 1H charts. This is probably the most famous and most popular style of retail trading, but effectively means you have a job as a full time Forex Trader.
News Trader – Trades during economic news, either guessing the news will be positive/negative or placing pending orders above and below price. News trading is risky as volatility is massive, whilst liquidity may be non-existent. You may not get filled or, worse, your stop loss might not be honoured! News trading used to be profitable but most brokers discourage it. We don’t recommend it.
Swing Trader – Makes the most of the medium-term trend by capturing profits from trend-following or counter-trend moves. Typically uses the 1H, 4H and Daily charts (8H and 12H charts are also used if supported by the trading platform). Trades can last from one day to a couple of weeks. A very popular style of trading as the profits can equal or better the income of a full time job (if you have enough trading capital) whilst taking only a small amount of time. Having started off as Day Traders, Marc and I now trade this way exclusively.
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Position Trader – Looks to ride the medium-term trend for as long as possible. Uses Daily and Weekly charts, may be in a trade for a few months. This is a useful strategy to take advantage of the swap – known as the carry-trade – which generates profits (if done the right way round!) by exploiting the interest rate difference between two currency pairs.
Long Term Investor – This is probably the least popular option for the retail Forex Trader. Trades off Weekly and Monthly charts.
Hopefully you now know a bit more about yourself as a Forex Trader. If you are unhappy with the way you trade currently, we hope this article will help you to reassess the way you trade and change your trading accordingly.
If you are interested in Swing Trading – only spending a few minutes a day and still making money – we can recommend Forex Trade Alarms, which is an excellent signal service. We have negotiated a $25 discount for the life of your membership – you need to click on the banner below and when prompted enter marc12001 in the coupon box.
Good trading,
Simon.
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